Superclusters: Canada’s $950 million commitment

April 19, 2017

With the launch of the Vector Institute at the end of March, Canada is claiming its place in the transformative field of artificial intelligence (AI). As a coordinated effort between governments, industry, and academia, the new institute aims to capture the commercial potential of Canada’s existing research strength and to act as a magnet to retain and attract top talent. This initiative marks the first of Canada’s “supercluster” endeavors.

In its 2017 budget, the federal government committed to investing $950 million in a small number of big bets, with the goal of creating “superclusters” – which we understand to be clusters that will boost the global competitiveness of Canadian industries, producing a large number of high-growth companies and successful exits.

To win globally, collaboration will be needed between Canada’s large businesses, startups, and post-secondary and research institutions to share the costs of research and development (R&D), move research to market, attract capital, and deepen the pool of research and business talent. As the Pan-Canadian Artificial Intelligence Strategy articulates, it will also require strong connections between centres of excellence across the country. This degree of collaboration will not emerge without a deliberate strategy. This is the challenge that the government's supercluster investment aims to tackle.

As the name implies, superclusters are an ambitious goal. Realizing this goal will require close attention to the appropriate roles for government, private and academic actors, a long-term commitment to performance management and evaluation, and coordination between governments and ministries to share data and streamline services.

Why Building World-Leading Clusters Matters

Whenever a particular area builds a critical mass of companies, scientists, knowledge workers, and suppliers, the interactions between actors – both competitive and collaborative – become positively self-reinforcing. This elevates the entire cluster to more advanced levels of knowledge, expertise, and productivity. This is how clusters like, yes, Silicon Valley, but also Boston (health technology) or Beer-Sheva in Israel (cyber security) have emerged as world leaders. (See Working Paper 26, Clusters in Ontario for more on clusters.)

Here at home, we are a small, open economy. We cannot hope to be world leading in all industries, and therefore need to align our existing areas of strength with emerging market opportunities. Success will require a razor sharp focus on breaking into the top three globally in a handful of industries.

The Role of Government

Governments alone cannot and should not conjure up new clusters. Nevertheless, they have an important role to play in helping nascent clusters grow and blossom to become world leaders.

First, government can play a pivotal role by funding research that develops clusters. Mariana Mazzucato, an expert on the impact of the state on economic development, found that key technological developments that we use today, like GPS and touchscreens, which led to new industries, resulted from government-funded research or procurement. Clusters can emerge from one or more anchor firms commercializing a new, market-changing technology, often based on research originally funded by government (such as a space agency or the military). Other firms then benefit from proximity to this original research and knowledge.

Second, evidence from Europe and the United States has shown that governments can play a key role in convening cluster actors and pooling resources to lower R&D and training costs and enable data sharing. Combined, these activities can enhance the competitiveness of a cluster. Manufacturing USA, backed by the US federal government, exemplifies this role.

Government must not overplay its position. It must know when to get out of the way to ensure that it does not stifle the natural “creative destruction” that underlies innovation.

Get Governance Right: Ensure the right industry and government leaders are involved and that mechanisms are in place for co-investment, measuring progress, and coordination among all actors.

Identify and Set Goals: Ensure that the focus of the strategy is on building globally competitive clusters where Canada has the opportunity to be in the top three in a current or emerging industry.

Track Progress: Measure progress against clear goals, not just at the funding level, but the cluster level. How do we know the investment has been successful? What is the next stage of development for a particular cluster?

Share Knowledge: Critical to innovation and the growth of any cluster is the sharing of knowledge and data between actors in the ecosystem. This enables collaborative R&D, more efficient identification of commercialization and investment opportunities, and tighter networks of innovators and entrepreneurs.

Think Beyond Funding: Committing $950 million to clusters is just one way the government can support the development of world-leading clusters. Similar to the Accelerated Growth Service, where the government is aligning its initiatives for scaling companies, the government should align other tools and programs with supporting emerging innovation clusters.

We know in our gut that Canada has the ingredients to embrace the challenge of building world-leading clusters. The federal government has signaled it is serious about the task. With the funding announcement behind us, the real work can begin.